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The impact of market structure and the business cycle on bank profitability: the role of foreign ownership. The case of Poland

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  • Malgorzata Pawlowska

Abstract

The aim of this study is to examine the impact of banking-sector structure and macroeconomic changes on bank profitability in the Polish banking sector over the past fifteen years (i.e., prior to and during the global financial crisis of 2008). The model developed in this paper incorporates the Structure-Conduct-Performance (SCP) hypothesis, as well as the Relative Market Power (RMP) hypothesis created by Smirlock (1985). Furthermore, this paper also examines the overall effect of financial structure and macroeconomic conditions to determine whether financial development and business cycles affect the profit of Polish banks. Finally, t his paper tests the impact of foreign capital on the profitability of Polish banks and attempts to determine if there is a link between the context of the parent banks and the profitability of their affiliates. Empirical results based on two panel data sets describing both micro-level and the macro-level data are ambiguous, and find evidence of the RMP hypothesis, as well as the traditional SCP, in the Polish banking sector. This paper also finds that increased foreign ownership and intermediation have a positive effect on bank profitability. Furthermore, this paper finds a positive correlation between the context of parent banks and the profitability of their affiliates. Also, the profitability of commercial banks in Poland are contingent upon the business cycle.

Suggested Citation

  • Malgorzata Pawlowska, 2015. "The impact of market structure and the business cycle on bank profitability: the role of foreign ownership. The case of Poland," NBP Working Papers 229, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:229
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    References listed on IDEAS

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    More about this item

    Keywords

    bank profitability; foreign–owned banks; concentration; market power; market structure; Lerner index; Polish banks; business cycle.;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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